Resin pricing: Plastics processors feeling gouged

The spot resin markets continued to transact at a rapid rate, polyethylene (PE) more so than polypropylene (PP), according to the weekly report from the PlasticsExchange. Completed volumes were considered high, and prices, which had been consistently falling for weeks on end, mostly held steady at these lower levels. Nearly all PE producers have lowered their August contract prices by $0.03/lb, although there are still widespread calls for a larger decrease. PP producers are quickly losing favor in processors' eyes, as they try to jam through a net price increase amid a 10% drop in PGP monomer costs. Houston resin prices remain weak and given concerns about oil prices and general economic health, sentiment in both the domestic and international resin markets remains bearish, says the PlasticsExchange.

The spot PE market saw good activity, with most grades readily available at discounted prices, writes the PlasticsExchange. Spot buying was better, as procurement opportunities below the suggested $0.03/lb August decrease were presented. Producers have long resisted the call for a larger price decrease; although it is getting late in the month, it is still possible, if not in August, then in September.

A wide range of prices were offered into the PP market. Some grades remain very tight, particularly Random Clarified, while others like homopolymer are becoming more available. New lows were seen for off-grade material in Houston. Overall PP demand has been very good, while some enduring production issues are keeping suppliers tight—producers continue to leverage this dynamic to expand margins. Even though PGP contracts dropped $0.035/lb, resin producers are showing resolve in implementing a net price increase of as much as $0.015/lb, according to the Plastics Exchange. Given sharply declining costs due to the overwhelming rout in energy and feedstock markets, downstream participants view this increase with disdain and feel some benefit should be shared.

The full weekly report is available on the PlasticsExchange website.

The effect of oil price volatility

If crude oil prices do not recover within five years, the second wave of new ethane crackers in North America likely will be postponed until 2025, reports IHS Chemical Week, which has published a study on how volatility in the crude oil market will affect the global petrochemicals industry. The report models short-, medium- and long-term price recoveries; the long-term recovery scenario has the most significant implications for the market, according to Don Bari, Vice President, Technology and Analytics, at IHS Chemical.

In addition to slowing growth in U.S. natural gas liquids production, resulting in postponement of ethane cracker projects--a great boon for ethylene producers in Europe and Asia, according to IHS Chemical--the long-term recovery model would create a "peculiar dynamic" in the plastics market.

"One of the most intriguing revelations from our long-term price recovery analysis was the impact on the plastics industry, particularly plastics demand and the implications for plastics recycling," Bari says in the article. "We found that low oil prices stimulate demand for virgin plastics by reducing economic incentives to recycle plastics. As less plastic is recycled, demand for ethylene further increases, which leads to more co-product production of propylene and butadiene."

Read the full article on the IHS Chemical website.